NBR Transcripts-April 8, 2009
Wednesday, April 08, 2009Pulte & Centex Pull Together To Weather The Housing Storm
SUSIE GHARIB: A bigger house for Pulte Homes today, as it merges with Centex. The $1.3 billion all stock deal between the two rivals creates the largest homebuilder in the nation. The companies are hoping that the combination which will use the Pulte name will help them survive the severe housing slump. But as Scott Gurvey reports, experts are divided on what the merger means for the housing industry.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The merger comes in the midst of the worst housing decline since the 1930s, with new home sales down more than 75 percent from their 2005 high. All the major homebuilding stocks have taken big hits in the last year. Pulte's stock is down 20 percent while shares of Centex are trading 70 percent below their price of one year ago. Analyst Robert Stevenson says this deal makes sense for the two companies but means little beyond that.
ROBERT STEVENSON, REAL ESTATE ANALYST, FOX-PITT KELTON: I think at the end of the day this deal basically guarantees the survival of the combined Pulte-Centex entity. I think what it doesn't do is sort of answer the question that everybody wants to know is, are we at the bottom for both housing and for the homebuilder stocks.
GURVEY: The Pulte-Centex combination will produce the nation's largest single homebuilder, with about 10 percent of the market. But analyst Parrish Glover says the value in the deal is the land in the Centex portfolio.
PARRISH GLOVER, HOMEBUILDING ANALYST, MORNINGSTAR: We're not sure bigger is better at any point in time. We had a lot of the home builders chasing growth through 2003, 2005 and it hasn't helped them out very much. The main thing seems to be a question of not how big you are but at what price you're getting your land at and Pulte appears to be getting a good price.
GURVEY: Sales of new homes rose unexpectedly in February, but there has been considerable debate about whether than indicates a bottom.
STEVENSON: The Pulte management would not be doing this deal if they didn't think that they were close or could at least see the bottom of this cycle. We have a different view. We're a little bit more cautious. We still think that there's material downside in terms of home prices and expect the job loses and the foreclosures to continue to filter through the system and push down on operations here at least through the end of '09 and into the early part of 2010.
GURVEY: Analysts do not expect this deal to touch off a new wave of consolidations. The combined companies will be twice as big as number two, DR Horton and Horton would have to buy several smaller companies to rival the new Pulte in size. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
SEC Asks To Hear From Investors
SUSIE GHARIB: The Securities and Exchange Commission wants to hear from you. The agency is now asking investors to comment on proposed new rules that restrict traders from selling stocks short. Critics say short-selling caused the financial meltdown. Supporters argue that short sales fueled the recent market rally. Darren Gersh takes a look at whether the new rules help or hurt investors in a volatile market.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Securities and Exchange Commission made clear it is not acting on any hard evidence short selling caused stocks to drop, adding fuel to the financial crisis. But SEC Chairman Mary Schapiro says the commission does need to address the perception that short selling hurts investors.
MARY SCHAPIRO, SEC CHAIRMAN: Investors themselves are saying that they feel less confident in putting their capital into the markets without additional restrictions on short selling.
GERSH: Short sellers believe the price of a stock will fall so they borrow shares and sell them, hoping to buy them back at a lower price and pocket the difference. To curb its effects, the commission is considering one or both of the following: a new up tick rule, replacing the one the SEC repealed two years ago. The proposed rule blocks shorting a stock when the price is falling. Short sellers would have to wait for a stock's bid or price to tick up before selling. The goal is to prevent sellers from piling on a falling stock. Another proposal, install so-called circuit breakers cutting off short sales when a stock falls more than 10 percent in a day. The NYSE/Euronext's Larry Leibowitz supports limits on short selling to curb abusive tactics.
LARRY LEIBOWITZ, HEAD OF US MARKETS, NYSE EURONEXT: All we are really trying to do is prevent someone from causing a panic in a stock and unduly influencing it. So that's why we are trying to strike a balance about when we kick the restriction in and what the actual restriction itself is.
GERSH: Several commissioners worried the proposals were a political solution in search of a market problem. Commissioner Troy Paredes says restricting short sales could end up hurting investors.
TROY PAREDES, SEC COMMISSIONER: Because of short selling, investors can be confident that securities prices reflect both optimistic and contrarian perspectives.
GERSH: Critics blame short sellers for piling on Bear Stearns and Lehman Brothers, helping to bring on the financial crisis. But former SEC chief accountant Lynn Turner says short sellers actually helped refocus stocks on reality.
LYNN TURNER, SENIOR ADVISOR, LECG: It did drive the price down, but it drove it down to what the real value of those companies were, not the inflated value that they were telling the market they were worth. So the shorts really played a key role here in keeping the market efficient.
GERSH: There is one key question regulators hope to answer in the public comment period on these proposed rules. That's whether the changes will simply force traders to use unregulated markets to execute their short strategies. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
"Reviving the Economy: Real Estate,"-Detroit's Foreclosure Business
SUSIE GHARIB: Detroit, Michigan has one of the highest foreclosure rates in the nation. There's a glut of empty homes because of double-digit unemployment, a disappearing population and plummeting home prices. As we continue our series, "Reviving the Economy: Real Estate," Diane Eastabrook recently visited Detroit where the foreclosure boom now means big business for some companies.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: In Detroit abandoned and foreclosed properties inhabit nearly every block in nearly every neighborhood. They've sent median home values in Wayne County plummeting to $16,000. That has actually helped Jeremy Burgess. Burgess's company, Urban Detroit Wholesalers, buys foreclosed homes at rock bottom prices, fixes them up, then sells them, mostly to investors who rent out the properties. Burgess says in recent months he's been astounded by the number and quality of foreclosed homes.
JEREMY BURGESS, MANAGER, URBAN DETROIT WHOLESALERS: Now we're actually seeing homeowners lose their homes as the result of the economy instead of a bad loan. Now it's actually families who care about their houses because these houses are in remarkably good shape.
EASTABROOK: The troubled U.S. auto industry and double digit unemployment rate in Detroit have triggered a tsunami of foreclosures. Last year, 50,000 homes were in various stages of foreclosure. This year, that number could reach 80,000. Wayne County Executive Robert Ficano worries another wave of foreclosures could overwhelm his budget.
ROBERT FICANO, WAYNE COUNTY EXECUTIVE: I think this next year alone because of foreclosures and people just having difficulty making their payments, we're probably going to see about $44 million less in property taxes come into the county at this point.
EASTABROOK: To head off some foreclosures Wayne County launched an intervention program last October. Consumers submit mortgage and financial information online. Counselors then try to negotiate with lenders. Cheryl Link is one of the success stories. The program helped her restructure her mortgage after an illness put her behind on her loan payments and in the crosshairs of foreclosure. How close were you to losing your home?
CHERYL LINK, HOMEOWNER: I was two days before the sheriff's sale when I contacted the mortgage foreclosure prevention program.
EASTABROOK: The program has helped about 1,200 residents so far. Still, program Director Jamele Hage admits avoiding foreclosure isn't always possible.
JAMELE HAGE, WAYNE CO. FORECLOSURE PREVENTION PROGRAM: Only about 30 percent of the families that we see can retain their home. We can still do some sort of a dignified exit strategy where a foreclosure is not on their record.
EASTABROOK: Even though Detroit has one of the most depressed real estate markets in the country, some lenders are encouraged by what Wayne County and Urban Detroit Wholesalers are doing. Wells Fargo has hired loan officers to focus on the city of Detroit and is having some success selling homes. Still, manager Jeffrey Levine says concern about the auto industry and the economy continue to hang over the motor city.
JEFFREY LEVINE, AREA MGR. WELLS FARGO HOME MORTGAGE: Right now people are a little unsure, so we have to create, we have to show them that it is a tremendous opportunity and there is an opportunity in Detroit that you are not going to have in other areas because of the values.
EASTABROOK: Despite the prospect of even more foreclosures this year Levine thinks Detroit's real estate market could be close to bottoming out. Of course, all of that could change if one of the domestic auto companies fails. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Detroit.
"Street Critique"-Hilary Kramer, Chief Market Strategist at Greentech Research
PAUL KANGAS Tonight's "Street Critique" guest thinks we've seen our bear market rally. She's Hilary Kramer, chief market strategist at Greentech Research. Hilary, good to see you again. Welcome.
HILARY KRAMER, CHIEF MARKET STRATEGIST, GREENTECH RESEARCH: Paul, thank you for having me on tonight.
KANGAS: You're still of the opinion that the market which has been up nicely in March and only a two-day downturn this week can gain no further traction?
KRAMER: That's right. This was the big roaring bear market rally that we were waiting for. It was violent and it was fast and it was 22 percent upside and there's now going to be a pullback.
KANGAS: Is that because the economy can't justify any further gains?
KRAMER: That's right, Paul. There are so many fundamentals that are really quite negative and what's bringing the market up is news that's really almost negative news with a good slant which is what the market's been taking. For example, that the insurers today are going to be able to qualify to receive government funds. That was considered excellent news. It's not excellent that they need money.
KANGAS: Right. Well, these government bailout efforts will eventually help, do you believe, in turning the economy?
KRAMER: Well, they've already made a difference. You know, we'll never know exactly how bad we could have been or we would have had an absolute implosion in our financial system which would have been systemic, but at the same time I'm very concerned that our government has used the last of its bullets. There's a lot of other sectors that are going to need help. The financial institutions seem to get all of the money.
KANGAS: Do you see any positives in the market developing here?
KRAMER: Only that hope springs eternal. Ultimately some of these stocks that have been thrown out for dead will come back, Paul. And there's some promise with some companies. And it's not as if the economy is at a complete standstill. It's just that it's contracting.
KANGAS: What's your biggest market negative?
KRAMER: Lay-offs. That's the problem. We're in an economy where people are getting laid off and it's not like they can just rebuild overnight because they potentially could lose their homes, credit cards, their cars because we're a society that has over borrowed and it took years for us to get into this situation. It could take years to get out.
KANGAS: On your last visit with us March 11, you were buying for yourself but not recommending for others three stocks. Starbucks (SBUX) is the first one, then Harley Davidson (HOG) and Citi (C). Tell us about them.
KRAMER: OK. I was recommending that I as a trader was looking at these stocks especially Starbucks which was completely oversold. It was given up for dead. The media and Wall Street started to hate Starbucks especially when they announced store closings but there's still a consumer following. There's loyal consumers.
KANGAS: Big gain.
KRAMER: Yes and look at how well it's done. Harley Davidson. This is another stock. I mean there are consumers that are loyal, loyal buyers of Harley Davidson. For some reason, it was being priced as if this company were going to go out of business. Harley Davidson won't. You can see in the stock price. Now I've traded out of both of those. The last one Citigroup, it became very clear it was a bargain in that $1 range because it's a government entity. It's a government business. It's not going out of business. I'll be (INAUDIBLE) of my Citigroup because you're not going to see it go much higher than this because again it's now basically a government company.
KANGAS: The only one of those that you're still with is Citigroup.
KRAMER: That's right. Even that I'm scaling out of, not much upside from here.
KANGAS: All right, very good. Apparently no new recommendations on the long side then.
KRAMER: No. Just remember cash is king. That's my mantra.
KANGAS: Hilary, thanks for being with us once again.
KRAMER: Thank you, Paul.
KANGAS: My guest, Hilary Kramer, chief market strategist at Greentech Research.
"Money File"-Home Loans
SUSIE GHARIB: In the "Money File" tonight qualifying for a home loan workout. Here's personal finance journalist Terri Cullen.
TERRI CULLEN, PERSONAL FINANCE JOURNALIST: With the unemployment rate approaching 10 percent, even homeowners with the best credit ratings are falling behind in their mortgage payments. The number of so-called prime mortgages that are now delinquent more than doubled last year, according to a recent government report. If you're a homeowner struggling to pay your mortgage due to a recent job loss, you may be able to qualify for a loan workout plan. A loan workout can give you time to catch up on missed payments or even suspend your payments for a few months. In some cases lenders may modify your loan terms, essentially refinancing your loan with easier terms, but without the upfront costs. Qualifying for mortgage relief isn't easy. Despite the surge in delinquencies, lenders are still making it tough for homeowners to avoid foreclosure. You'll have to back up your need for mortgage relief with monthly bills and tax and income statements. Above all, be truthful with yourself about what you can now afford and be prepared to prove it to your lender. Finally, watch out for loan modification scams. Scam companies claim that, for a fat upfront fee, they can get your lender to drastically lower your mortgage rate or even forgive missed payments. After paying the fee, victims get little or no help at all. Don't fall for it. If your lender isn't willing to help, contact HUD, the U.S. Department of Housing and Urban Development. HUD has loan counselors that can to help negotiate with lenders. If your case requires special attention, HUD can also put you in touch with legitimate loan mediation services or consumer advocate attorneys. Dealing with lenders can be intimidating, but help is available and you don't have to go it alone. I'm Terri Cullen.
Paul Kangas' Stocks in the News
PAUL KANGAS: After two straight down days, Wall Street heads higher on that Pulte Homes buyout of Centex and the SEC's move to restrict short sales. In a steady rally the Dow posted an 85 point gain by 1:00 p.m. with the NASDAQ up 33 points. Then the market turned choppy and mixed this afternoon after the Federal Reserve released minutes of its last meeting, showing policymakers took bold action pumping more than $1 trillion into the financial system, because of the worsening economy. But then thanks to some late buying, the major indices ended on a positive note. The Dow Jones Industrial Average closed up 47.55 points at 7837.11. The NASDAQ Composite gained 29.05 points ending at 1590.66 while the Standard & Poor's 500 Index rose 9.61 to 825.16. In the bond market, the 10-year note gained 13/32 to 99 4/32, putting the yield at 2.85 percent.
Big board volume leader today on 74 1/2 million shares was Ford (F) moving up $0.46.
Then Citigroup (C) with a $0.06 loss.
Prologis (PLD), this is a real estate investment trust, up $0.38 and the company priced a public offering of its common stock, 152 million shares at a price of $6.60.
Bank of America (BAC) a $0.30 drop there. Oppenheimer says the company may need to raise up to $37 billion in fresh capital because it's still facing large write downs.
General Electric (GE) dropped a penny a share today.
And then Wells Fargo (WFC) $0.04 gain.
Pfizer (PFE) $0.03 drop.
Alcoa (AA) up $0.27. As we reported after the close yesterday, Alcoa had a first quarter loss of about $0.60 a share, $0.03 worse than expected.
JPMorgan Chase (JPM) up $0.18.
And then American International Group (AIG) was a $0.03 gainer today.
Moving along Hartford Financial (HIG) up $1.14. As we just heard, life insurance companies could get some of those TARP funds and this is one of them, Hartford up $1.14.
Let's look at some of the other majors that may qualify, Genworth Financial (GNW), Lincoln National (LNC), Principal Financial (PFG) and Prudential Financial (PRU) all nice gains on that news.
Daimler Ag (DAI) up $2.24. Goldman Sachs upgraded it from "neutral" to "buy" in the belief that most of the bad news is reflected in the current stock price.
Rockwell Automation (ROK) doing well, up $3.27. Speculation the company may be the object of a takeover attempt. No suitors mentioned that I saw.
Ryder System (R) the logistics (ph) company, down $5.31. First quarter guidance was cut by the company from $0.40 to $0.50 a share all the way down to $0.22 to $0.24 and Ryder sees poor economic environment continuing for the rest of this year.
Family Dollar (FDO) did well up $1.97. Second quarter earnings jumped to $0.60 from $0.45 a year ago. Same store sales up 6.4 percent. Standard & Poor's repeated a "strong buy" on Family Dollar store stock.
Ruby Tuesday (RT), the restaurant chain, up $2.21. Third quarter adjusted earnings came in at $0.26 a share and that was $0.15 better than the Street consensus.
Invest Tech Group (ITG) tumbling $5.66. The company's increases in February and March trading volume came in below Wall Street expectations. The Sandler O'Neill and Piper Jaffray brokerage both downgraded the stock from "buy" to "hold."
Apple (AAPL) topped the NASDAQ active list with a gain of $1.32.
Research in Motion (RIMM) up $1.96.
Bed Bath and Beyond (BBY) $6.19 gain. After the close yesterday as we reported, fourth quarter earnings came in at $0.55, $0.11 better than the Street expected, so nice gain in the stock.
Microsoft (MSFT) $0.43 advance there.
Intel (INTC) down $0.18.
Google (GOOG) up $3.35.
Cisco Systems (CSCO) $0.28 gain.
Qualcomm (QCOM) $0.86 advance.
Juniper Networks (JNPR) rose $1.89. The Broadpoint Amtek (ph) brokerage upgraded it from "neutral" to "buy."
And then Oracle (ORCL), tenth in volume, edged $0.03 higher.
Finally, shares of the WD-40 Company (WDFC) closed up $1.21, but after the market closed, this company reported disappointing second quarter earnings, $0.25 versus $0.51 a share a year ago on a 22 percent drop in sales. That sent the stock off almost $3 in after hours trading.
