NBR Transcripts-June 3, 2009
Wednesday, June 03, 2009Fed Chairman Ben Bernanke Expresses Cautious Optimism on Capitol Hill
SUSIE GHARIB: Ben Bernanke said today he expects the U.S. economy to begin growing by the end of this year, but it won't be a robust recovery. Testifying on Capitol Hill, the chairman of the Federal Reserve delivered a cautiously upbeat forecast. He warned lawmakers the recovery will quote, gradually gain momentum, but the unemployment rate will continue to rise. Bernanke also is concerned about massive government deficits, saying they threaten the nation's financial stability. Washington bureau chief Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: For weeks, markets have been debating the reasons behind a recent spike in interest rates. Today the Fed chairman weighed in explaining to a congressional panel the jump in bond and mortgage rates was part good news, part bad news.
BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: These increases appear to reflect concerns about large Federal deficits but also other causes, including greater optimism about the economic outlook, a reversal of flight-to-quality flows and technical factors relating to the hedging of mortgage holdings.
GERSH: The Fed chairman said he wouldn't be giving any clues today about whether interest rates are high enough to force the central bank to take more aggressive action. That decision will come at a Fed policy meeting in three weeks. Bernanke does see the economy growing later this year, not by much, but enough to remove the threat of a dramatic fall in prices and wages.
BERNANKE: Our concern for a time at least was that the recession would be so severe that we would see deflation and we have taken strong actions to try to avoid that and I think the fear of deflation has receded somewhat and that is a positive development.
GERSH: The other concern out there is inflation, especially price increases that might be caused by the Federal Reserve printing money to finance the growing public debt. Bernanke warned the government could not run huge deficits indefinitely without damaging the economy. But for now, he said the nation could finance its skyrocketing debt, because the U.S. is borrowing less from overseas as consumers cut back and the trade deficit falls. Still, Bernanke assured Wisconsin Republican Paul Ryan the Fed could change it's near zero interest rate policy, accommodation, as economists call it, at the right moment.
BERNANKE: You don't want to remove accommodation so soon, as to, you know, as to prevent the recovery from taking hold. On the other hand, you don't want to wait so long as to lead to a inflation in the medium term. We're fully confident from a political independence point of view, we'll make that decision as we need to make it.
REP. PAUL RYAN (R) WISCONSIN: It will clearly occur in an atmosphere of more pressure than I think you've seen in the past given where we are right now.
GERSH: Bernanke signaled some banks may soon be under less political pressure. The Fed chairman said he'll release a list next week of banks that should be able to repay their government TARP loans, which means the Treasury could be getting some cash back in a matter of weeks. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
What's Fueling Rising Oil Prices ?
SUSIE GHARIB: President Obama is in Saudi Arabia tonight meeting with King Abdullah. One subject they'll be talking about: price volatility in the oil markets. Meanwhile crude prices slipped today after the U.S. government reported an unexpected jump in supplies. In New York trading, July crude futures fell $2.43 to close at $66.12 a barrel. But prices are still up sharply in the last month. Suzanne Pratt takes a look at what's fueling the spike. SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Remember those annoying speculators that some people tried to blame last summer when the price of crude shot up to nearly $150 a barrel? By some accounts, they're back. Trader Tim Jennings says there are more speculators in the market today than there were six months ago when oil prices were much lower.
TIMOTHY JENNINGS, OIL TRADER, VANTAGE TRADING: I think so. I think as the market's improved I think people that have cash on the sidelines are putting that money to work and are investing in the markets, the crude oil markets now.
PRATT: But many oil experts also say speculator is a misleading and negative label. What we're really talking about is people who have no intention of taking delivery of the oil, in other words, investors. Investors or speculators, whatever you call them, oil analyst Jonathan Kleisner says they never really left.
JONATHAN KLEISNER, MANAGING DIRECTOR, REX CAPITAL GROUP: It is notable that no one talked about speculators when crude oil was $30 a barrel earlier this year. There was just as many speculators involved then as now.
PRATT: Kleisner also says speculators play a valuable role in the marketplace, helping to keep volatility to a minimum.
KLEISNER: They really do add a market amount of efficiency so the gap between the natural buyers and natural sellers is often narrowed by the speculators.
PRATT: Others say the reason we're fretting about speculators now is the need to blame someone for this year's 50 percent jump in crude prices. Many believe the supply-demand fundamentals simply do not support the current price of oil. Nevertheless, most experts believe demand will accelerate this fall, pushing oil prices even higher.
JENNINGS: I'm not sure I would say $147 and I'm not sure I would say $100 but it seems to me technically you could look at $75 as kind of a near-term target.
PRATT: Others predict prices will continue to climb because investors or speculators will buy oil as a hedge against inflation and because oil is now widely accepted as a way to diversify a portfolio. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
"Street Critique"-Michael Farr, President, Farr, Miller and Washington
PAUL KANGAS: Tonight's "Street Critique" guest says he's getting worried of those so-called green shoots. He's Michael Farr, president of the money management firm Farr, Miller and Washington and author of "A Million Is Not Enough." And Michael, good to see you again.
MICHAEL FARR, PRESIDENT, FARR, MILLER & WASHINGTON: Thank you, Paul and greetings from the world financial capital.
KANGAS: That's for sure. You know, this market actually has been giving a pretty good accounting of itself even though you've been rather suspicious of the up move. What do you think?
FARR: Paul, I think that we're up 38 percent from the lows and that certainly feels very good. But Secretary Geithner was suggesting that we were more concerned about our budget deficits than anyone else. He made that suggestion in China and he was laughed at. Bernanke today said that budget deficits are a growing and significant problem, that we were going to have to raise taxes and cut spending and he was concerned about the stability of the overall financial system given the growing deficits. This year's deficit should be like 4 X last year's and that's a high number.
KANGAS: The economy, however, is coming alive. A lot of the green shoots have been showing up recently. Do you think they're for real? Are they going to stay?
FARR: I think that it's early and I think that the comps are easy and we're seeing some positive signs. I don't mean to say that. I just don't think we're seeing signs that support a 40 percent rally in stocks and I don't think that we're out of the economic woods yet. We're seeing an increase in home sales when you have rates drop below 5 percent and you see a 30 percent drop in prices makes all the sense in the world to me, but that doesn't get me excited that everything is hunky dory nor does it indicate that housing prices might not go lower.
KANGAS: So the housing market is really the key to it all, is that what you're saying?
FARR: Housing market and credit market are the two keys. Credit's feeling a little bit better. Housing continues to decline.
KANGAS: Uh-huh, uh-huh. In January, you gave our viewers 10 stocks for 2009, all of which are listed on our web site. Your picks are doing very well averaging an 8.5 percent gain year to date versus the Standard & Poor's 500 3.2 percent gain. Any changes to the portfolio? Are you with them for the whole year?
FARR: We're going to stick with this portfolio. I think it's a defensive portfolio that outperformed when things were doing very poorly. It's held up very nicely, continuing to outperform during good times. I was sort of struck that the only name on the list, Johnson & Johnson is my only name under water right now. I think that that really reflects policy risk in the administration and the large part of the discussion we're hearing about health care.
KANGAS: Is there any favorite that you have right now out of the 10?
FARR: I wouldn't actually say that I've got a favorite, but when I looked through my list, Cisco is 18.8 percent, whichever one goes up most, Paul, is always my favorite.
KANGAS: Well of course, it'll be going into the Dow Industrial Average. That'll help with index fund buying, of course.
FARR: It does, indeed. But we really don't have much financial exposure at all. I think will leave us in very good stead. Health care, some industrials, IT and some consumer staples are really giving us a very protected and well-performing portfolio.
KANGAS: Michael, you own all of these 10 stocks, do you personally?
FARR: Personally and the company.
KANGAS: All right, very good. Good to see you, once again.
FARR: Thank you, Paul, very much and be careful out there.
KANGAS: I will. My guest is Michael Farr of Farr Miller and Washington, author of "A Million Is Not Enough."
"Reviving the Economy"-The Confidence Factor
SUSIE GHARIB: Every night this month, we're taking a closer look at the markets. We'll examine topics ranging from what's the small investor to do to the safety of the Treasury bond market. It's the latest installation of our continuing series "Reviving the Economy." In tonight's "Money File," the importance of investor confidence. Here's Eric Schurenberg, editor in chief at Bnet Moneywatch.
ERIC SCHURENBERG, EDITOR IN CHIEF, BNET MONEYWATCH: The big rally of the past couple weeks cemented, in my mind anyway, an idea that is taking root among economists. The economy is not truly explained by the supply demand equilibrium functions taught to every econ freshman. Psychology is what really matters. At heart, what we have here is a confidence game. And I mean that in the best possible sense. The rallies were launched by a surge in consumer confidence. Some commentators remarked on the circularity of it all. Consumers feel better really because stocks have risen since March; in other words, stocks rose because they had risen. But maybe stocks went up because there is nothing more powerful in this economy than confidence. If confidence rises, stocks may follow first, but then might come car sales and home sales and then corporate profits. All of sudden, the merely psychological turns into something you can bank on. In the stock market, confidence is measured by the price/earnings multiple, the price that investors pay for each dollar of earnings they're entitled to. If you expect more earnings where today's came from, you pay more. So far, most of the spring rally has come from an increase in P/E. Eventually, these expectations have to be confirmed by higher earnings, but yes, it gets circular. Higher earnings can't happen until people have those higher expectations. The market's role in the recovery, then, will be a familiar one: the first herald of a return of confidence. Warren Buffett famously said that the market is a weighing machine in the long run but a voting machine in the short run. You can't have recovery until investors vote for it. Since March, the vote has been clear. I'm Eric Schurenberg.
"Last Word"-Closet Case
SUSIE GHARIB: And finally tonight, it's been said that good things come in small packages. That's certainly the case for a Florida architect. While Sergio Santos has an impressive portfolio that includes large buildings and college dorms, it's his smallest project that getting lots of attention. In order to save money, he's living in a small closet. The 77 square foot area is a very small space. The shelving unit doubles as a staircase for the bunk bed/television room. And Paul, the answer to the question on everyone's mind and I'm sure you're thinking it too -- Santos shares a bathroom with his neighbor.
KANGAS: The guy likes spacious homes. I think the biggest room in that place is the room for improvement.
GHARIB: Yes, claustrophobic, right?
KANGAS: Yeah, right.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street snapped a four session winning streak as profit takers moved in. The Dow fell nearly 100 points in the first hour of trading with the NASDAQ off 19 points. Despite news of a lower than expected .7 percent rise in April factory orders, the market managed to trim its losses in late morning but buyers backed away on caution over what Friday's May unemployment report would show. The blue chips dipped as much as 130 points in late trading before rebounding slightly. So the Dow ended down 65 points at 8675.28. The NASDAQ Composite lost nearly 11 points ending at 1825.92 while the Standard & Poor's 500 Index fell almost 13 points to 931.76. Over in the bond market, the 10-year note gained 20/32 to 97 19/32, putting the yield at 3.54 percent.
Big board volume leader on 35.4 million shares, Citigroup (C) losing $0.12. A New York Federal appeals court has cut the (INAUDIBLE) case against Solomon Smith Barney regarding $200 million in losses in WorldCom.
Bank of America (BAC) down $0.19. The company and five other major banks have satisfied their sales of auction rate debt.
Ford Motor Co (F) $0.23 loss there.
American International Group (AIG) $0.09 drop.
Same story for Pfizer (PFE), although Pfizer got FDA approval for its product Paladia , which is used to treat advanced cancer in dogs.
JPMorgan Chase (JPM) down $0.52.
AT&T (T) lost $0.38.
General Electric (GE) $0.30 drop there.
Wells Fargo & Co (WFC) down $0.26.
Tenth in volume was Keycorp (KEY) losing $0.22 a share.
Wal-Mart Stores (WMT) up $0.95, got a boost from the Baird brokerage which issued an "out perform" rating on Wal-Mart.
Valero Energy (VLO) down $3.98. The company sees a second quarter loss of about $0.50 a share because of extended down time at two of its refineries. Meanwhile, BMO (ph) Capital downgraded the stock from "market perform" to "under perform."
And the whole refining sector was weak today on that pullback in oil prices. Let's have a look at some of the majors. Frontier Oil (FTO) down $2.41.
Sunoco (SUN) losing $2.27.
And a $2.33 loss in Tesoro (TSO).
Aetna (AET) off $1.27. The company cut its 2009 operating earnings guidance from a high of $3.95 a share all the way down to $3.70 at best. Meanwhile, Wachovia downgraded it from "out perform" to "market perform."
Agrium (AGU) losing $3.60 a share. The company is extending for one week its $4.4 billion tender offer for CF Industries and if that is not a well-received offer, Agrium will walk away from the deal.
Cardinal Health (CAH) down another $2.17 after losing $4 yesterday on the company's disappointing outlook. Today the Baird brokerage downgraded it from "out perform" to just a "neutral" rating.
And Williams Sonoma (WSM) losing $1.20. The company posted a first quarter loss of $0.14 a share, versus earnings of a nickel a share a year ago after the Street thought the loss would be bigger and minus $0.21, but in the meantime, Standard & Poor's repeated a "strong sell" and that hurt the stock.
Apple (AAPL) up $1.46.
Followed by Google (GOOG) with a gain of $3.25.
Microsoft (MSFT) edged up $0.33 a share.
Research in Motion (RIMM) down $2.13.
Cisco Systems (CSCO) $0.25 loss there.
Qualcomm (QCOM) $0.33 loss.
Intel (INTC) dropped $0.25.
Amazon.com (AMZN) was up $0.75. Goldman increased price targets on Amazon and also on Baidu (BIDU) which was up $8.86.
EBay (EBAY), tenth in NASDAQ volume, edged a penny higher.
Tivo (TIVO) up $3.72, huge percentage move. After the close yesterday as we reported, the company won a patent lawsuit against Echostar Communications regarding Tivo's DVR technology.
And finally, Antigenics (AGEN) surged $1.12 on news the company's kidney cancer treatment has shown to boost survival rates in certain patients.
