NBR Transcripts-May 8, 2009
Friday, May 08, 2009Another Half Million Jobs Lost But Unemployment Is Slowing
SUSIE GHARIB: The nation's unemployment rate is now at its highest level in 25 years, 8.9 percent. American businesses cut 539,000 jobs in April, right in line with forecasts. But there were signs of hope in the dismal report. The pace of layoffs slowed, suggesting to some economists that the worst of the job losses are over. Suzanne Pratt reports.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: It's hard to feel good when the U.S. loses more than half a million jobs in one month. But when it comes to economic statistics, much is relative. And even though employers cut 539,000 jobs in April, there's no denying the pace of layoffs is slowing. It looks like the deepest job cuts of the recession came in the first three months of this year, two of which were revised downward today. While economist Brian Fabbri believes the worst of the bad months for job losses is over, he says it's too soon for Americans to feel secure about employment.
BRIAN FABBRI, CHIEF ECONOMIST, BNP PARIBAS: We're looking at six million jobs lost already in this recession. I think we'll probably get to eight and we're still not out of the woods in terms of the labor market conditions.
PRATT: Part of the problem is the labor market lags the overall economy. So, even if we are seeing those much-talked about green shoots of a recovery, it could be next year when the economy finally stops losing jobs. Other economists warn investors not to get too jazzed about the April employment report. Yes, employers cut the fewest jobs last month since October, but the jobs lost were still widespread, coming in construction, manufacturing, retail and financial services. And even though the Federal government added 72,000 positions to payrolls, much of those were census workers.
FABBRI: The 62,000 that were going for the census, when the census is over, when they finally take all of the surveys for the census, those people get fired.
PRATT: And let's not forget the unemployment rate, which spiked up to nearly 9 percent in April. Many economists like Conrad Dequadros believe that number could head higher before topping out next year.
CONRAD DEQUADROS, ECONOMIST, RDQ ECONOMICS: Given the speed with which the unemployment rate has risen, given the extent of the weakness in the economy and I think the likelihood that the recovery is probably going to be quite lackluster, it's my expectation that the unemployment rate may not get to 10 percent, but it's certainly a risk.
PRATT: Most economists agree, when it comes to the job market, things are less bad rather than getting better. But for an economy gripped by the scariest recession in decades, that's one more glimmer of hope. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
One on One with Thomas Lauria, Bankruptcy Attorney with White & Case
SUSIE GHARIB: Chrysler's dissident lenders abandoned their fight today as their ranks dwindled and political and financial costs rose. The move clears the way for Chrysler to emerge from bankruptcy quickly and join Fiat. The so-called "non-TARP" lenders had opposed Chrysler's restructuring plan, saying it put non-secured creditors like the United Auto Workers ahead of secured creditors. Washington bureau chief Darren Gersh spoke with the attorney representing that lender group. Darren began by asking Thomas Lauria why they gave up on the case.
THOMAS LAURIA, BANKRUPTCY ATTORNEY, WHITE & CASE: Well, they still believe in the underlying legal and financial principles that motivated them to get started. But the political pressure was just too great for a sufficient number of them to feel comfortable proceeding. And when we got down to the small group that was prepared to put themselves in the bright light of the public eye and bear all of that pressure themselves, I think they just concluded they were too small a group to be credible and too small a group to carry the weight.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: I just want to ask you, it seems like if the government wasn't willing to pump billions of dollars into Chrysler, it wouldn't be worth much even if you liquidated the company. Aren't your clients lucky to get the $0.30 on the dollar that the government was offering them?
LAURIA: Well, a lot of people have looked at the liquidation value of Chrysler and I think there's room for a lot of disagreement on that. One of the questions is if you're going to liquidate Chrysler, do you really liquidate it, selling sticks and bricks or do you sell off business lines and I think a lot of people think that the Ram truck, the Jeep and the minivan line were pretty valuable as operating businesses.
GERSH: Is this a case though where the law may have been on your side but all the facts weren't, that there just were too many -- you were against the government, the unions. Everybody seemed to want to get a deal done and there were just a few people holding out?
LAURIA: It was a case where certainly the circumstances were against us. And certainly there were strong political interests against us. I think the question that this reorganization raises though is are there any circumstances where we're comfortable compromising the rule of law in the interest of political interests? I think that's a very difficult question.
GERSH: It's a difficult question and I imagine a lot of people who are going to be involved in the GM's potential bankruptcy are asking that very question about what this means for them. You're a bankruptcy attorney. Does this say anything about what might happen to GM and the people who are involved in that case?
LAURIA: There are certainly similar issues. I know a lot more about Chrysler than I do GM. You have a situation where we have lenders who have already put their money in. It's been spent and you have employees who have to continue working to provide value going forward. So there's natural tension there in that relationship. I think the bigger question though is will the auto industry or any other troubled industry that may have important political issues associated with it be able to attract private financing on a (INAUDIBLE) basis? Certainly a lender who looks at what is happening to the lenders in the Chrysler case might have second thoughts. And we know there are other industries that are going to need rescue financing, the airline industry, GM coming up. Will the government be the only source of that financing? Certainly the administration says that they're hopeful that the private sector will participate, but I'm not sure that this is much of an inducement for that.
GERSH: Well, you were involved in these negotiations. Tell us what the government was like to deal with. What were they like leading up to this bankruptcy filing?
LAURIA: Well, one of the interesting things is we didn't really ever get to get in a room and negotiate with the task force. We had an eight- member steering committee that represented the bank debt for institutions that had received TARP funding and for institutions that had not. And that was the negotiating vehicle. When it got to a point where the view of the non-TARP lenders separated from those of the TARP lenders, we reached out separately to try to engage with the task force and although we're able to submit a proposal which contemplated a 50 percent reduction in the value of our claim, we're never able to engage with the other side. And in fact, I think that was one of the disturbing things is that it felt like we were really kind of getting the stiff arm and then when you turn on your TV the next day and hear the president say that my clients refused to make concessions when in fact they had offered a 50 percent concession and were in fact the bad guys when nobody would talk to us, it's a little troubling.
GERSH: Well, Tom Lauria, bankruptcy attorney, thank you for talking to us.
LAURIA: Thank you.
"Reviving the Economy"-Auto Sales' Impact
SUSIE GHARIB: Slumping auto sales are forcing many communities to downshift their budgets. In many towns, auto dealers are big generators of jobs, tax revenues and charitable contributions. As we continue our series "Reviving the Economy: Government Responds," Diane Eastabrook takes us to Libertyville, Illinois, where sputtering auto sales are being felt from the village hall to the little league field.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Libertyville, Illinois, relies on sales tax revenue for 20 percent of the village's budget. Sue Opeka's gift shop has been doing its part to boost tax receipts this year.
SUE OPEKA, OWNER, THE PRESENT MOMENT: Through the first quarter, we are up 10 percent year to date.
EASTABROOK: But the same isn't true for Libertyville's dozen car dealerships. Those businesses account for the lion's share of the village's sales tax revenues -- more than 60 percent. The recession is making this one of the worst years in history for auto dealers, including Dan Mark's 36-year-old Lincoln Mercury dealership.
DAN MARKS, PRESIDENT, LIBERTYVILLE LINCOLN-MERCURY: The first quarter of '09 traffic was down significantly obviously, due to the economic situation and I would say we are down 15 to 20 percent relative to the first quarter of '08.
EASTABROOK: Cities across the U.S. are struggling in one of the worst economic crosscurrents in decades. Last year, three common sources of municipal revenues -- sales, property and income taxes -- were down across the board. Experts see the trend continuing this year. Michael Pagano, dean of the college of urban planning at the University of Illinois at Chicago, says Libertyville's dilemma isn't unique. Pagano says many municipalities are seeing sales tax revenues shrink. But he says there isn't much they can do, because states typically restrict sales taxes.
MICHAEL PAGANO, DEAN, COLLEGE OF URBAN PLANNING, UIC: We still are confronted with the problem of having a very narrow base that the retail sales tax is applied to and the consumer's dollar -- most of the consumer's dollar is now spent on services which are not part of the retail sales tax base.
EASTABROOK: To offset sales tax losses on dealers row, Libertyville has been marketing its downtown business more and working harder to attract new business to its industrial park. But faced with a growing budget shortfall, community development director John Spoden has recommended a village hiring freeze and cost cuts wherever possible.
JOHN SPODEN, COMMUNITY DEVELOPMENT DIR., LIBERTYVILLE , IL: We are doing budgeting 12 months a year instead of just two months at the end of the year. We're constantly looking at what is coming in and what is going out. The village has done a lot of attrition in terms of folks who have left the village or retired. We are not necessarily filling those positions.
EASTABROOK: Even Libertyville's little league has been affected by the slump in auto sales. This spring, two auto dealers dropped out as league sponsors, so sponsorship director and coach Jeff Kistler is finding other ways to fund teams.
JEFF KISTLER, SPONSORSHIP DIR., LIBERTYVILLE LITTLE LEAGUE: We've had to be certainly a little bit more creative and do a little more actual personal knocking on doors, asking people to dig a little deeper and support the community. I think we're going to have to get a little more involved this year in terms of fundraisers.
EASTABROOK: Libertyville doubts its dealerships will ever generate the kind of sales tax revenues they did just a few years ago and that could change the way this community does business indefinitely. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Libertyville, Illinois.
"Market Monitor"-Dr. Hans Black of Interinvest
PAUL KANGAS: My guest "Market Monitor" this week is Dr. Hans Black, chairman of Interinvest, a global money management firm with offices in Canada, Switzerland, Bermuda and Boston, Massachusetts and Hans, welcome back to the program.
DR. HANS BLACK, CHAIRMAN, INTERINVEST: Thank you very much. Good to be here.
KANGAS: Last October you told our viewers that U.S. stocks were cheap and you forecasted a big rally at least by spring. Well here we are into a two-month rally. Is it for real or is it a trap for the market bulls?
BLACK: It looks for real right now, Paul and we're certainly very happy about what's happening and it's pushed a lot of stocks up. But we are beginning to see speculation in a lot of markets, not just here but in some foreign markets as well and the moment we start seeing that our inclination is to start worrying. And I think central bankers are going to worry. I think central bankers are going to worry they were too generous with some of the liquidity that's entered the money markets.
KANGAS: So you're doing a little selling into the strength, are you?
BLACK: That's correct.
KANGAS: OK. What's your opinion of the stress test results? Will they really be meaningful?
BLACK: I think it's a good PR exercise. I think, you know, when these decisions were made in the context of February, March, everybody was very worried just what was going to happen. So I think it's sort of anticlimactic now. I think the numbers are reasonable, but we still have other problems to come in housing, which I don't think is over. We'll see how things look in the fall.
KANGAS: Are you still worried about the economies in eastern Europe and Korea or do you see signs that will help the U.S. market?
BLACK: Yeah, we're -- we were very concerned and still are concerned about some emerging markets, notably eastern Europe which is far from over. We have seen major defaults also in some of the former Soviet Union countries like Kazakhstan, a major bank default and I think you've got to keep an eye on Pakistan here which of course is having immense internal political problems and that I think is maybe the number one foreign market you've got to worry about.
KANGAS: In addition to being a money manager, you are a medical doctor, so I must ask you about what you think is going to happen with the H1N1 flu outbreak.
BLACK: Well, I think it's very serious. The WHO in Geneva has taken this very seriously. They've ranked it on a scale of five out of six on the global pandemic scale. It could easily jump to a six. We're going to have to watch this this fall because as flu season starts again around the world in the northern hemisphere in the period of September, October and November this can get very serious again.
KANGAS: Now in October when you were last with us. you gave our viewers three stock picks. Microsoft (MSFT) was at the top, the bluest of blue chips and strangely enough, it's down just a little bit. Are you still with it? BLACK: Yes, we like the company. We certainly will hold it here.
KANGAS: You would buy more here?
BLACK: Yes, we like the stock. We don't think there's anything wrong.
KANGAS: Bristol-Myers (BMY) is up a bit. You're staying with it?
BLACK: Yes. We like Bristol. Bristol doing some interesting things actually. They're moving money into some smaller enterprises, some smaller existing biotech companies. We think that's the wave of the future.
KANGAS: OK.
BLACK: Putting money in smaller enterprises.
KANGAS: And El Paso (EP), you liked. It's up a little bit, so not bad too. You like --
BLACK: Thank you, I think El Paso is great value here.
KANGAS: We just have less than a minute for some new stock picks. Let's go ahead with that number one choice.
BLACK: I'll mention Incyte (INCY) which is a biotech company. Great products, a deal with Pfizer on an analgesic. A number of products in phase three, superb value here.
KANGAS: INCY trading symbol.
BLACK: That's correct.
KANGAS: Number two choice?
BLACK: I'll mention Newmont (NEM) which to us is just a huge pot of value. It's a gold stock of course. We think gold prices are headed a lot higher, biggest producer in the world and should be trading a lot higher than it is.
KANGAS: We have time for one more quickly. BLACK: I'll mention Angiotech (ANPI) which is a Canadian biotech company. We own a very large position there which is a matter of public record, but we think that stock is recovering and going to go a lot higher.
KANGAS: ANPI is the trading symbol. And Hans, do you personally own these stocks?
BLACK: Absolutely.
KANGAS: Our time has run out but I want to thank you for sharing your insights with us again.
BLACK: Pleasure to be here. Thank you Paul.
KANGAS: My guest Dr. Hans Black of Interinvest.
Paul Kangas' Stocks in the News
PAUL KANGAS: The employment report put Wall Street's blue chips in strong rally mode, because it underscored many recent reports hinting at a turnaround in the economy. At mid-day, the Dow posted a 109-point gain, but the laggard NASDAQ Index was up only five points. A generally positive view of the bank stress tests and short covering purchases kept stocks buoyant all afternoon and they closed at the day's best levels. The Dow Industrial Average ended up 164.80 points at 8,574.65. This week, it fell twice and rose three times, had a net gain of 362.24 points. The NASDAQ Composite rose 22.76 to 1,739 even today. It also fell twice and rose three times this week for an overall advance of 19.80 points. The Standard & Poor's 500 Index gained 21.84 points, ending at 929.23 today and it rose 51.71 points for the week overall. Over in the bond market, the 10-year note gained 14/32 to 98 20/32, putting the yield at 3.29 percent.
New York exchange volume leader on 118.2 million shares was Citigroup (C) moving up $0.21.
Wells Fargo (WFC) had a good day, up $3.42. The strength of the bank stocks would indicate a generally positive view of the stress test results.
Bank of America (BAC) up $0.66.
Morgan Stanley (MS) $1.06 advance.
American Intl Group (AIG) was up $0.06, all gains on the first five actives.
General Electric (GE) moved up $0.57.
JPMorgan Chase (JPM) rising $3.70.
Pfizer (PFE) up $0.24.
$0.18 rise in Ford Motor Co (F).
And completing this list of plus signs, ExxonMobil (XOM) up $1.87.
McDonald's (MCD) had a good day, up $1.53. The company said April global sales were up 6.9 percent, pretty impressive.
And then Toyota Motor (TM) in the wrong business these days, down $1.07. The company's forecasting a full year loss of $8.6 billion.
American Axle & Manufacturing (AXL) had a huge move up, $2.49 advance. Deutsche Bank upgraded it from "hold" to "buy" on valuation, thought the stock was far too cheap.
And then Allstate (ALL), the insurance company, off $1.48. First quarter operating earnings only $0.84 down from $1.33 last year. That's $0.39 below the Street estimate. Revenues fell 2.5 percent.
On the other hand, an insurance company that did well Metlife (MET) up $3.75 after the Federal Reserve told the company its capital is adequate.
International Rectifier (IRF) down $2.66, over a 16 percent drop. Third quarter loss of $1.13, much bigger than last year's $0.30 per share loss and revenues plunged 42 percent in the period.
Millipore (MIL) up $4.69. Nicely higher first quarter earnings of $1.06 versus $0.80 a year ago and the company boosted its full year earnings guidance. Standard & Poor's repeated a "buy" recommendation on Millipore.
MDC Holdings (MDC) the home builder, up $2.26. The company narrowed its first quarter loss to only $0.88 from $1.58 last year, even though revenues plunged 56 percent.
Assured Guaranty (AGO) up $2.59. First quarter earnings, $0.69. The Street was looking for earnings of only $0.15.
On the downside, Orbital Sciences (ORB) losing $1.20. The latest government budget proposal eliminates a missile defense program in which this company was involved.
NASDAQ's most active, Apple (AAPL) up $0.13.
Then Fifth Third Bancorp (FITB) up $3.14 on relief that the company needs to raise only $1.1 billion which analysts feel will not be a problem.
Google (GOOG) up $10.72. The Sanford Bernstein brokerage boosted its price target to $600 a share in the belief that a recovery in revenues in the fourth quarter will boost full year revenues by 7 percent for Google.
Intel (INTC) a $0.48 drop.
Research in Motion (RIMM) $0.41 gain.
Microsoft (MSFT) up a dime.
Then Cisco Systems (CSCO) $0.22 loss.
Qualcomm (QCOM), $0.55 drop.
Oracle (ORCL) fell a dime.
And then DirecTV (DTV) losing $0.67.
Dryships (DRYS) losing $2.04. That's more than 20 percent on news the company plans its third common stock offering in the past six months which means more earnings dilution. Those are the stocks in the news tonight.
