NBR Transcripts-May 22, 2009
Friday, May 22, 2009Uncle Sam Sends More Financial Aid to GM
SUSIE GHARIB: General Motors got another big cash infusion from the government late today as it drives against time. The struggling auto maker said it borrowed an additional $4 billion from the U.S. government and it will need another $1.5 billion before June 1. GM has just one week to meet a deadline from the Obama administration -- come up with a viability plan or head to bankruptcy court. Also today, GM reached a deal with its Canadian union. It inked a tentative deal with its American union yesterday. Bond holders have until Tuesday to accept GM's offer. So far they've rejected the deal holding out for better terms. Now Morningstar auto analyst David Whiston believes GM bond investors will eventually lose out mostly because of politics.
DAVID WHISTON, AUTO ANALYST, MORNINGSTAR: I think it would be bad form for the White House to be tongue lashing, 30 percent of the (INAUDIBLE) that are retail investors. A lot of those people are retirees and those aren't the people that the Democrats want to be picking on. I don't know. It's just-- it's just a really bad situation for the bond holders and it looks like the UAW is going to get favors, just as they were in the Chrysler deal.
"Reviving the Economy: Government Responds"-Preventing Car Plant Closures
SUSIE GHARIB: Meanwhile some lawmakers on Capitol Hill are calling on the administration to hold off on shuttering some auto plants and take a second look at the impact of those closures. They say the restructuring at GM and Chrysler will leave many communities with empty factories. Those plants have provided hundreds of jobs and millions in tax revenues for decades. As we continue our series "Reviving the Economy: Government Responds," Diane Eastabrook visits a Wisconsin city that is dealing with the potential loss of a Chrysler plant for the second time.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Like all of its factories, Chrysler's Kenosha engine plant is temporarily closed while the bankrupt auto company pares huge inventories. But next year this facility is slated to shut down for good, along with seven other Chrysler plants across the country. That means this community perched on Lake Michigan will lose 800 jobs and a steady source of tax revenues. Todd Battle, the president of the Kenosha area business alliance, is now brainstorming about what the city will do once the 100-acre site stops making engines.
TODD BATTLE, PRES., KENOSHA AREA BUSINESS ALLIANCE: We have to start thinking about what is the environmental condition of the site. If you have to do demolition, what's that cost? How would the community control the site or work with the company that is closing it to have some control over the site?
EASTABROOK: The pending closure of the engine plant is bringing a sense of deja vu to Kenosha. Twenty years ago, Chrysler shuttered an assembly plant in the community. That action left 5,000 people without jobs and the city with a 70-acre parcel of land on its hands. Today a trolley skirts that tract of land which is now home to a 350-unit upscale condominium park and two museums. After Chrysler razed the assembly plant, Kenosha took over the property. It spent over $8 million cleaning up the site and millions more upgrading the area, before attracting developers. Mayor Keith Bosman says Kenosha is prepared to repeat the process at the engine plant, but he admits the cost may be double what it was two decades ago.
MAYOR KEITH BOSMAN, KENOSHA, WI: We know that there are problems there, industrial uses for over 100 years. We know that the cost could be $10 to $20 million just for cleanup. It might take a couple of years. We'll do the remediation. We'll start all over.
EASTABROOK: The engine plant sits in the center of Kenosha across from older commercial and residential properties. The city doubts another manufacturer would locate here, but thinks the land could be used by other businesses or redeveloped for housing. Robert Bach, senior economist for the real estate and investment firm Grubb and Ellis, believes the site could be rehabilitated, but he cautions it could take a long time.
ROBERT BACH, CHIEF ECONOMIST, GRUBB & ELLIS COMPANY: It's hard right now because cities and states don't have a lot of extra cash lying around to do this sort of thing, so these projects tend to get done over a period of years. We're not talking about having these sites redeveloped in a couple of years. You know, it might take five years. It might take even longer.
EASTABROOK: While Chrysler winds its way through bankruptcy reorganization, some in Kenosha hope the company's new partner, Fiat, will decide to keep the plant open. But if it doesn't, the community is confident it can rebuild when Chrysler leaves again. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Kenosha, Wisconsin.
UVA Darden's School of Business, Dean Robert Bruner on What's Ahead for MBA's
DARREN GERSH: The recession has been a painful time of market upheaval and economic crisis around the globe. For the MBA class of 2009, it brings fewer job offers and some unexpected wisdom. Yesterday, we heard from some of the students at the University of Virginia's Darden School of Business. While there, I asked their dean, Robert Bruner, whether the recession will ultimately be a valuable lesson for these grads.
ROBERT BRUNER, DEAN, UNIV OF VA, DARDEN SCHOOL OF BUSINESS: It's difficult to say that pain is healthy and that dashed hopes and disappointment is healthy. But I think that in the long run this generation is going to emerge stronger and wiser because of this experience. I tell the students, you'd really rather have an experience like a crash early in your professional life than late. So this generation will probably emerge much more sane about risk taking, much more prudent about thrift and investing.
GERSH: So are they going to go out and make things as opposed to finance things? And is that what the economy needs right now?
BRUNER: That is the popular wisdom, but I will tell you that when I invite every class to Darden and welcome them, one of my standard questions is, how many of you want to run your own firm and really do things to serve society? Virtually the entire class raises its hand.
GERSH: And yet business schools train the people who brought us this financial crisis by and large. I'm wondering, is this a time for reflection at places like Darden among professors about whether or not you did the right thing?
BRUNER: No one can look at the events of the last two years dispassionately. No one can ignore the pain and dislocation that this has caused. I think we need to focus henceforth much more carefully on the way we think about risk, the way we assess it, the way we mitigate it. I think business schools need to embrace the consequences of the use of derivatives much more widely and help our students and the companies they serve use them more judiciously.
GERSH: But this gets to a very important issue which is whether or not there was something wrong with the mouse trap on Wall Street or whether the people who were running it were acting unethically. And so I'm wondering, does that mean that business schools need to pay more attention to ethics?
BRUNER: Ethics are a big concern. I think after this, the message for business school students and businesses will be a message about the importance of integrity in all business activities. I still think there's a lot more we need to do, mainly to help graduates -- not merely our own but graduates across board -- understand that their role must be to create value for society at large, rather than merely to extract value or shift value.
GERSH: Now, you can see more of our interview with Darden School Dean Robert Bruner on our web site, nbr@pbs.org.
"Of Mutual Interest"-Todd Cohen, CIO, Community Capital Management
DARREN GHARIB: There are hundreds of socially responsible funds out there, but the CRA qualified fund is unusual. Not only is it a bond fund, but it takes a pro-active approach to helping revitalize communities. Erika Miller has more in tonight's "Of Mutual Interest."
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Taino Plaza looks unremarkable from the outside, just another government housing project in a low income neighborhood. But come to the building's rooftop and you'll see what makes this place special. It is covered with solar panels, which cut the building's energy usage in half. This is exactly the type of community development project the CRA qualified investment fund supports. Todd Cohen is the chief investment officer of the company that manages the fund. Cohen says the mission of the CRA qualified investment fund is special.
TODD COHEN, CHIEF INVESTMENT OFFICER, COMMUNITY CAPITAL MGMT.: When most people think about socially responsible funds, they think of the avoidance of objectionable practices such as alcohol, tobacco and firearms. Whereas our fund, all our investments seek to positively impact the community.
MILLER: The fund invests the majority of its assets in the highest quality, government supported mortgage-backed securities. The fund also buys taxable municipal bonds to support community development, as well as bonds that raise money for Small Business Administration loans. Here in the Bronx, the fund's investments helped this hardware store create new jobs. New York is far from the only state that is benefiting from the fund's investment. Over the past decade, the fund has purchased $2.5 billion worth in economic and community development securities in all 50 states. The name of this fund comes from its origins -- a way for banks to meet the requirements of the community reinvestment act or CRA. That law is designed to encourage lending in low income areas. But Cohen says the fund also makes sense for retail investors seeking a reliable income stream.
COHEN: It's a great time for our fund because many of the government's efforts to revitalize the economy are in the very same sectors in which we've been trafficking in for the last 10 years. For instance, Fannie and Freddie are going to be vital components to the government's efforts to stabilize the housing markets which are one of our largest holdings.
MILLER: 2008 was a great year for the fund. It returned 4.25 percent, when most intermediate term bond funds lost more than that. So far this year, the fund is up 2.4 percent. Morningstar analyst Lawrence Jones warns the expense ratio is high at nearly 1 percent, but his firm still gives the fund four stars out of five.
LAWRENCE JONES, MUTUAL FUND ANALYST, MORNINGSTAR: Over the long-term, it is designed to provide fairly competitive results for a fund that actually has a reasonably narrow mandate. I think it's rarely going to be at the top of the pack, again except during periods of extreme credit market stress.
MILLER: But there is one more thing Jones says investors should know before buying into the fund. In 2006, when Todd Cohen was at a different firm, he was sanctioned by the SEC for not properly supervising two traders a decade ago. It's a concern Morningstar recognizes.
JONES: The fact that he's chief investment officer and presumably does have an oversight role to the fund again does raise a little bit of a red flag here, given the past infractions. But that being said I still think this is a very unusual fund. It's a very interesting one to look at. It's just something that investors have to make sure they are comfortable with and go in clear eyed knowing all the facts.
MILLER: And as the fans of the CRA qualified investment fund point out, it's a unique opportunity to revitalize low income communities and your bank account at the same time. Eriika Miller, NIGHTLY BUSINESS REPORT, New York.
"Market Monitor"-Derwood Chase, President, Chase Investment Counsel
SUSIE GHARIB: Our "Market Monitor" guest tonight says that even though the stock market is rallying, it's still a bear market. He's Derwood Chase, president of Chase Investment Counsel. Nice to have you back, Derwood. How are you?
DERWOOD CHASE, PRESIDENT, CHASE INVESTMENT COUNSEL: Just fine, thank you.
GHARIB: So we can't shake off this bear market. Give us your analysis on why you think we're still in a bear market.
CHASE: The characteristics of the recovery just don't quite qualify, in our judgment. I think it's anticipating a faster turnaround than the economy and we haven't seen the exhaustion of selling that you normally see before a sustainable bull market.
GHARIB: And your advice to your clients in this kind of market is that they're better off putting their money in defensive stocks. Can you give us your analysis on that?
CHASE: Well, we're trying to stay in good-quality growth companies that have good defensive qualities and some are contra-cyclical. Of course we're assuming individual investors have substantial reserves to protect them in a high-risk market.
GHARIB: Let's go over some of the stocks that you recommended the last time you were on the program back in December, which was a very difficult time when the markets were pretty much on a downward spiral. Abbott Labs (ABT), Proctor & Gamble (PG) and Wal-Mart (WMT) were all down by 15 percent. Do you still own any of these stocks?
CHASE: We are fundamental and technically oriented, and the technicals broke down on all of those stocks so we did eliminate them. If you still held any of them, I think we'd feel comfortable continuing to hold Wal-Mart.
GHARIB: All right, all right. Let's move on and look at your new stock picks. At the top of your list TJ Maxx, ticker symbol TJX. What's the attraction there?
CHASE: In difficult times when consumers are really watching their budget, a discount retailer, usually 40 or 50 percent off on name brands, stands out. They're much more able to maintain their earnings and we think they'll have earnings up slightly this year and a little bit further next year. So it's a good compromise in the retail area.
GHARIB: You have a stock recommendation in the oil patch, Schlumberger, the oil driller, SLB on the big board. Tell us about that one.
CHASE: Well you know, 85 percent of the oil reserves worldwide are owned by various national companies, but Schlumberger is the outstanding oil service company. Everybody needs their services particularly on the very deep, horizontal, very complicated wells. Their services are more widely needed and they're gaining market share.
GHARIB: Now the stock got as high as $100, $105 about a year ago. Do you see it reaching up to those levels? Of course oil prices were higher back then, too.
CHASE: I think within a couple of years oil prices will be high, much higher again and they should recover, along with the oil prices.
GHARIB: All right. Newmont Mining, NEM trading at around $47 a share. What's your view on that stock?
CHASE: That's one of the bigger, more outstanding gold mining companies. And we like that as a contra-cyclical and as an inflation hedge.
GHARIB: All right. Do you have any disclosures to make? Do you own any of these stocks?
CHASE: I own all of them as one of the larger individual investors in Chase growth fund or directly.
GHARIB: We just have a little bit of time left. You can just share with us any other thoughts that you have on the market or any worries that you have?
CHASE: Well, technically, I think the market is very likely to test the March lows. Whether it does that in the next month or so or whether it does that a year from now remains to be seen. So we consider it a high- risk market.
GHARIB: All right, thank you so much for coming on the program. Hope you have a great weekend.
CHASE: Same to you.
GHARIB: Our "Market Monitor" tonight, Derwood Chase, president of Chase Investment Counsel.
Paul Kangas' Stocks in the News
DARREN GERSH: Some pretty light trading on Wall Street today ahead of the holiday weekend. As a hedge fund manager once told me, people close out their trading positions before a holiday so they don't have to make decisions in their swim suits. While moving higher early on, stocks headed south after the FDIC said it would charge banks a special fee to help restore its insurance fund. So the Dow closed down almost 15 points at 8277. For the week, it rose once and fell four times but still managed a tiny net weekly gain of about nine points. The NASDAQ fell three points today to 1692. It rose twice and fell three times this week, gaining almost 12 points overall. Standard & Poor's 500 lost a point to 887. It logged a four point gain on the week. Now some perspective on the S&P. If you looked at all the companies in the index as if they were a single stock, Citigroup analysts figure the S&P would earn $56 a share next year. In 2006, the figure was $88. So our recovery has a ways to go. In the bond market, the yield on the 10-year rising to 3.45 percent.
Bank of America (BAC) again the big volume leader falling $0.34. Much of the $5.6 billion the FDIC is raising for deposit insurance will come from big banks like B of A. The agency sees the tab for bank failures costing $70 billion in 2013.
General Motors (GM) down $0.49. As we mentioned, a bankruptcy deadline coming soon. Under the company's restructuring plans, current shareholders would end up owning about 1 percent of GM.
Citigroup (C) losing a nickel.
Regions Financial (RF) a $0.06 loss.
American Intl Group (AIG) sheds $0.10.
General Electric (GE) down $0.14.
Wells Fargo (WFC) loses $0.73.
Ford Motor (F) $0.07 drop. The stock has been on a solid run for a few months.
Pfizer (PFE) up $0.13.
JPMorgan Chase (JPM) down $0.49.
Archers Daniels Midland (ADM) rising $1.32 or 5 percent. Citigroup upgrades from "sell" to "hold" on an expected increase in demand for its soy products.
Wellpoint (WLP) loses $0.64. Stiefel Nicolaus downgrading the company in part on concerns about what health care reform will mean for the nation's largest HMO. Now those reform efforts will heat up here in Washington next month.
Look at LDK Solar (LDK). It's the big loser of the day, down $1.53, almost 17 percent. The solar company posted weak first quarter earnings after the bell yesterday. Now all week, we've been hearing from solar firms about the glut of panels out there as the credit crisis forces cutbacks in new solar energy projects.
It is Memorial Day weekend which means cookout time and there's a dog off brewing. Kraft (KFT) up $0.53. The maker of Oscar Myer hot dogs running ads this week claiming their hot dogs taste better than Ballpark franks.
The Ballpark maker Sara Lee (SLE) down $0.05, has launched a legal dog fight, suing Kraft, calling the ads misleading. Now analysts got a laugh out of this, but Sara Lee and Kraft are facing some pressure from trading down phenomenon where people buy more store brands, though consumers still prefer name brand hot dogs.
Flipping over to the NASDAQ, Apple (AAPL) fell $1.68.
Research in Motion (RIMM) dropped almost $1.
Microsoft (MSFT) down $0.07.
Google (GOOG) fell $3.
Intel (INTC) slid $0.13.
Cisco Systems (CSCO) fell $0.20.
Cougar Biotech (CGRB) up $5.84 or almost 16 percent. The cancer company being acquired by Johnson & Johnson for almost $1 billion. That is a smaller premium than we've seen in other deals.
Qualcomm (QCOM) down $0.38.
Oracle (ORCL) up $0.08.
And CME Group (CME) closes out the NASDAQ actives up $13.17.
Take a look at Sears Holdings (SHLD) up $5.21, another less bad story here. After the bell, Sears reported it made a profit in the first quarter. That is less bad than the Street had expected. Analysts were projecting a big loss. Still, overall revenues off 9 percent. The housing market is hurting things like appliance sales.
And those are the stocks in the news tonight.
