NBR Transcripts-May 1, 2009
Friday, May 01, 2009Chrysler Shifts Into Bankruptcy Mode
SUZANNE PRATT: Day one in bankruptcy court for Chrysler and the nation's number three auto maker is wasting no time. Lawyers for the car maker said they'll file a motion to sell the company to Fiat and close five more plants. They also asked for access to $4.5 billion in operating capital. Chrysler is moving fast, hoping for a surgical bankruptcy, but debt holders are preparing their push for a better deal. And as Darren Gersh reports, all this may be a preview of a much bigger battle over the future of General Motors.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: In the restructuring plan GM sent to the Treasury, it estimated even a quick bankruptcy would lead to a sharp 35 percent initial sales decline. After two months, GM figured sales would rebound, but still be off 10 percent. Now GM will be able to test those estimates using Chrysler as a model. Standard & Poor's Gregg Lemos-Stein says GM will be taking notes on how the competition fares in bankruptcy.
GREGG LEMOS-STEIN, CREDIT ANALYST, STANDARD & POOR'S: In many ways this action by Chrysler and by the government is a litmus test to see whether this concept of a controlled bankruptcy really can work and I'm sure the people who are working on the GM organization are looking closely at how Chrysler sales trend over the next month or two while it's in bankruptcy.
GERSH: GM will also be watching the action in bankruptcy court to see who comes out ahead -- Chrysler's debt holders or workers. Legally, debt holders are entitled to more protection in bankruptcy court, but the Obama administration has worked hard to protect union health care benefits. Since GM has many of same huge legacy costs, University of Maryland Professor Peter Morici sees Chrysler as the early battlefield.
PETER MORICI, BUSINESS PROF., UNIVERSITY OF MARYLAND: At the end of the day, the bondholders are going to get some shares. The unions are going to get some shares. The question is how many shares go to the bondholders and how many shares go to the union. A good picture of how that will work out will be established by the Chrysler bankruptcy.
GERSH: There is one striking difference between GM and Chrysler. Chrysler needs a partner to survive, which means Fiat will add another major player to an already crowded court proceeding.
MORICI: Over at General Motors it's a very different situation. They have all the pieces of a competitive company there and they do not need to acquire a new partner. So that makes it somewhat less complex.
GERSH: Somewhat. Chrysler is pushing hard for quick in and out trip to court. But in the next few days we may know whether a surgical bankruptcy is possible for any auto maker. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
One on One with Charlie Munger, Vice Chairman Berkshire Hathaway
SUZANNE PRATT: Warren Buffett says he wants tough questions from shareholders at Berkshire Hathaway's annual meeting tomorrow. Investors will certainly ask about the company's stock. It has tumbled more than 30 percent in the past year. Also answering questions, Charlie Munger, Buffett's business partner for half a century and Berkshire's vice chairman. Munger keeps a low profile, but today in Omaha, he sat down for an interview with Susie Gharib. She began by asking him what he'll say to shareholders tomorrow to restore confidence in Berkshire.
CHARLES MUNGER, VICE CHAIRMAN, BERKSHIRE HATHAWAY: I think the reality is that if you hold a stock for a long long term even though it's screamingly successful as an investment, you will have huge declines in the value of that stock two or three times in half a century. And I don't think that should bother long term holders all that much.
GHARIB: Mr. Munger, shareholders will certainly have questions tomorrow on why Berkshire took such large positions in derivatives especially since you and Mr. Buffett have warned for years that derivatives are dangerous investments. What are you going to tell them?
MUNGER: We think the bets we made were intelligent bets. That's why we took the positions. It's just that simple. We also think that the system which allowed derivative bets to be so widely available was bad public policy. There's nothing inconsistent in those two actions.
GHARIB: We hear more and more people saying that the economy's improving, that the worst is over. From what you're seeing at Berkshire, what kind of shape is the economy in?
MUNGER: Well of course there are glimmers of hope and of course not all the news is bad. But averaged out it's deadly serious and the threats and problems are far from over. We have a very unpleasant stretch to go through at best.
GHARIB: When do you see the recovery coming?
MUNGER: We don't have any special ability to make that kind of macro economic prediction.
GHARIB: How are Berkshire's businesses doing so far this year?
MUNGER: Mixed. But the two biggest businesses, which are insurance and utilities, are flourishing. So I would say that even with all of the bad effects we've had, we're not catching our full share of the horror.
GHARIB: You delayed the release of Berkshire's quarterly results and some people are speculating that maybe things aren't going so well for Berkshire. What's your response to that?
MUNGER: I guarantee you that Berkshire is not delaying reporting based on whether things are going well or ill. There are delays because there are glitches of getting the job done right as fast as they would like to have it done.
GHARIB: So what's your business strategy for 2009? Are you running Berkshire differently to deal with this economic downturn?
MUNGER: Our fundamental way of operating we're not changing. Are we a little more cautious based on the extreme disruptive effects that are conceivable, I think the answer is yes.
GHARIB: How are you being more cautious?
MUNGER: We're a little less willing to borrow and a little less willing to spend. And that is happening all over America.
GHARIB: Some of Berkshire's investments are in financial stocks like American Express and Wells Fargo. Does it make sense to continue to hold on to these stocks? What's your outlook for the financials?
MUNGER: Well, I think the companies which we are invested have very respectable futures from this point forward. The financial world should be restructured so that these people who are too big to fail are not allowed to behave in such a gamey fashion. I'm pessimistic with the regulatory changes that come down. I'm afraid they won't be as severe as we need.
GHARIB: As an investment, investors should stay away from financials for now?
MUNGER: I didn't say that. We need the financials. We can't have a modern civilization without strong financial companies. But we don't need them as swashbuckling and as crazy and as venal as they've been.
GHARIB: This has certainly been an unusual time. What have you learned about Warren Buffett and how he handled this financial crisis that you didn't know after working with him for 50 years?
MUNGER: I don't think Warren Buffett has changed at all in terms of the way he handles this sort of thing. He handled it well 35 years ago and he's handling it well now.
GHARIB: Now I understand there are three candidates who are being considered to take over from Warren Buffett when the time comes. I know you're not going to tell me who they are. But what do you think is the most important characteristic for this job?
MUNGER: I don't think there's any one way that's the right way to run a corporation. Different people have different styles. Different people have different strengths. I am quite confident that Berkshire will be governed very well long after Warren and I are gone.
GHARIB: Mr. Munger, it's been a pleasure talking to you. Thank you so much for your time.
MUNGER: You bet.
PRATT: On Monday, we hear from the Oracle of Omaha. Susie brings us her interview with Warren Buffett and gets his outlook for Berkshire and the economy.
"Market Monitor"-Michael O'Higgins, President of O'Higgins Asset Management
PAUL KANGAS: My guest "Market Monitor" this week is Michael O'Higgins, president of O'Higgins Asset Management based in Miami Beach, Florida. Michael, welcome back to NIGHTLY BUSINESS REPORT.
MICHAEL O'HIGGINS,PRES., O'HIGGINS ASSET MANAGEMENT: Nice to be back.
KANGAS: Give us your diagnosis on the current stock market's condition.
O'HIGGINS: Well, at least on a near-term basis, it feels like it's kind of rolling over but it's holding in there. Seems like it can't make up its mind whether it wants to roll over or go up.
KANGAS: April was the best month for the market in some say nine years.
O'HIGGINS: For the S&P, it's the best April since 1938.
KANGAS: Right and I mean is it still a bear market rally or is it the beginning of a new bull?
O'HIGGINS: I think it probably is a bear market rally but we won't know for quite sometime I guess.
KANGAS: Do you think it's reflecting optimism that the Obama economic plan is going to work and do you think it will work?
O'HIGGINS: I think it is reflecting an optimism that things have bottomed out economically whether it's thanks to Obama or not. But chances are it won't work. At least the two instances that we had in the past where they tried this same kind of fiscal monetary stimulus in the '30's here and since the '90's in Japan. It didn't work either of those two times.
KANGAS: Inflation is a definite threat do you feel?
O'HIGGINS: It seems to me that these people are not going to stop. I'm talking about the Obama administration and the Fed, until they get a return of inflation.
KANGAS: What is your investing strategy against the background like this?
O'HIGGINS: I'm protecting myself principally with precious metals, so I have gold mining stocks, silver and physical silver and gold and TIPS and Canadian dollar.
KANGAS: Last October you gave us several recommendations. Let's see how they picked up or down.
O'HIGGINS: A little bit of both.
KANGAS: You had an undying the faith in Citigroup (C) and so many people did and it just didn't turn out well at all.
O'HIGGINS: No, that was a disaster.
KANGAS: Are you with it or out of it?
O'HIGGINS: I'm out of it.
KANGAS: The I-shares in Italy (EWI) you felt were unduly depressed and they got even more depressed. How about those, still with them?
O'HIGGINS: No, I don't own Italy anymore.
KANGAS: Gave up on them, OK. Let's move it along and see what other I-shares of the emerging markets (EEM) in general a nice gain of 18.3 percent. Congratulations on that one.
O'HIGGINS: Thank you.
KANGAS: And the spiders, that's the oil equipment spiders (XES), 4.2 percent gain. Not bad.
O'HIGGINS: No.
KANGAS: Any gain at all in these days is fine.
O'HIGGINS: In a down market.
KANGAS: That's right. I think this was one more, was there? ProFunds Precious Metals (PMPIX) up 16 percent. Still like it.
O'HIGGINS: It's OK. I prefer another one which I'll mention in a little bit.
KANGAS: Let's have some new selections, then.
O'HIGGINS: OK. Well, first we'll start off with the gold miner's, it's a gold miner's ETF. It owns gold and silver mining stocks, principally gold, symbol GDX. And then we have SLV which is the silver, physical silver. Each share represents one ounce of silver. Silver is very cheap to gold. Gold is cheap to paper but silver's even cheap to gold. So silver should do extremely well.
KANGAS: That's a direct correlation between...
O'HIGGINS: Yes. Each share is equivalent to an ounce of silver.
KANGAS: OK. We have time for another election.
O'HIGGINS: The gold GLD is physical gold, ETF and then we have the TIPS, well we have the Canadian dollar which is FXC (INAUDIBLE) directly with the Canadian dollar. Canadian dollar is very cheap to the U.S. dollar. And then lastly Treasury Inflation Protected Securities fund, symbol TIP which should protect you from inflation. Right now the market is telling you that it's assuming that inflation is going to be about 1.4 percent for the next 10 years. I think that's very doubtful and if that's -- inflation's high, these will do well relative to inflation.
KANGAS: Very good. Michael do you own these securities personally or have other disclosure to make?
O'HIGGINS: No. I own them all myself.
KANGAS: You like them all.
O'HIGGINS: I'm trying to survive. I think that's the key in the coming years.
KANGAS: We have half a minute for some final thoughts to our viewers.
O'HIGGINS: I think people have to really get used to the idea that for a period of time such as we've had in the past, from the late 20's to the early 50's, from the 60's to the 80's, you have long periods of time where the market really goes no where. And so you've got to get used to lower rates of return and if the inflation situation that I'm anticipating actually occurs, you really have to get real returns, not just nominal returns.
KANGAS: Very good, interesting comments, thanks very much for being with us again Michael.
O'HIGGINS: Thank you Paul.
KANGAS: My guest Michael O'Higgins of O'Higgins Asset Management.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened the month of May with a round of profit taking in the wake of April's big stock gains. Adding to the bearish mood, news that March factory orders fell a worse than expected 0.9 percent. So an hour into trading, the Dow posted a 58 point loss with the NASDAQ down 12 points. Stronger than expected April manufacturing activity and consumer sentiment helped overcome that early weakness and the major indices turned positive by the final bell. The Dow Industrial Average closed up 44.29 at 8212.41. This week it rose twice and fell three times. It had a net advance of 136.12 points. The NASDAQ Composite was up 1.90 at 1719.20 today. For the week it fell twice and rose three times for an overall gain of 24.91 points. Standard & Poor's 500 advanced 4.71 ending at 877.52 today and it gained 11.29 points for the week overall. Over in the bond market, the 10-year note fell 10/32 to 96 19/32, putting the yield at 3.16 percent.
Topping the active list on 38 1/4 million shares, Bank of America (BAC) down $0.23. As you heard the stress test setback to next Thursday.
Citigroup (C) an $0.08 loss there.
And then Ford Motor (F) down $0.29.
General Electric (GE) moved up $0.04.
And Wells Fargo (WFC) a $0.40 loss.
Pfizer (PFE) gained $0.22.
JPMorgan Chase (JPM) down $0.51.
Co Vale do Rio (RIO) up $0.91.
Morgan Stanley (MS) had a good day, up $2.18.
And then Sprint Nextel (S) a $0.31 gain there.
Chevron (CVX) was up $0.77 even though first quarter earnings tumbled 64 percent from last year, $0.92 versus $2.48. I guess that was widely expected.
Mastercard (MA) had a rough day, down $10.55 and it traded as low as $163.65 after reporting first quarter earnings down 18 percent to $2.80 from $3.37 last year. Revenues dropped 2 percent and the company warned its 2009 revenue growth will fall short of its objective.
Metlife (MET), big insurance company, down $2.30. First quarter operating earnings, $0.20, way down from $1.46 last year, $0.14 below the estimate on the Street.
Another insurance company, Aon Corp (AOC) losing $5.82. First quarter earnings were higher, $0.76 versus $0.70 last year, but $0.12 below the Wall Street estimate.
General Cable (BGC) moving up $5.86. First quarter earnings, $0.92, down a bit from $1.08 last year, but the Street was looking for only $0.56 and so that was $0.36 better than expected and a nice move in the stock to go with it.
McAfee (MFE), the Internet security firm, up $2.92, $0.34 in first quarter earnings, well above last year's $0.18 and revenues jumped a respectable 21 percent.
Mettler Toledo (MTD), this is a precision scale company. First quarter earnings $0.95, down from $1.01 last year, but $0.14 above the Street estimate. The Baird brokerage upgraded it from "neutral" to "out perform."
Dean Foods (DF) down $1.77, $0.52 first quarter earnings, down from or up from $0.23 last year, but the company plans a 22 1/2 million share common stock offering. That would represent earnings dilution. The stock moved down on the news.
Chiquita Brands (CQB) up $1.57, first quarter operating earnings, $0.49, down from $0.94 last year, but $0.21 above the Street estimate.
And then we see PerkinElmer (PKI) up $2.90. First quarter earnings, $0.26, same as last year, but $0.06 above the Wall Street consensus.
NASDAQ's most active Apple (AAPL) up $1.41. Dow Jones reported the company may lower the price of some of its computers in light of the recession.
Research in Motion (RIMM) up $2.80. UBS financial upgraded it from "neutral" to "buy" and boosted the price target from $65 to $90 a share.
Microsoft (MSFT) down $0.02.
First Solar (FSLR) up a huge gain yesterday, down $6.40.
Google (GOOG) $2.28 drop there.
Intel (INTC) $0.03 gain.
Cisco Systems (CSCO) $0.26 advance.
And then Dryships (DRYS) moved up $0.86.
Qualcomm (QCOM) $0.34 advance.
Amazon (AMZN) down $1.56.
Elsewhere, Celgene (CELG) down $3.18. After the close yesterday, first quarter earnings $0.44, a penny above the Street estimate, but today Credit Suisse downgraded the stock from "out perform" to "neutral" and down went the price.
Those are the stocks in the news tonight.
