NBR Transcripts-June 12, 2009
Friday, June 12, 2009Treasury Yields Continue To Rise
SUSIE GHARIB: The major stock market averages once again posted weekly gains, but the bond market is what traders are talking about these days. Prices rallied on Treasuries and yields came down, thanks to successful auctions this week. That's important news for consumers, because the rates for mortgages and other loans are tied to those Treasury yields. As Scott Gurvey reports, the fluctuations in rates has been frustrating for many savers and spenders.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you've been shopping for an auto loan or a mortgage for a new home purchase or thinking about refinancing one you already have, you know interest rates are well above the lows set earlier this year. Those rates are certainly distressing if you are in the market for a loan. But as Dominic Konstam of Credit Suisse reminds us, earlier this year, we were worried about rates falling too far.
DOMINIC KONSTAM, GLOBAL HEAD, INTEREST RATE STRATEGY, CREDIT SUISSE: The rise in inflation expectations is definitely about going back to normal. Inflation expectations, typically, for 10 years out are between 2, 2 1/4 percent, and that's exactly where the TIPS market -- which prices for inflation -- break even rates are, so yes, that's definitely normalcy.
GURVEY: Mortgages and other consumer loans are generally tied to Treasury bond yields and those are the yields which have risen sharply. Zane Brown of Lord Abbett says other segments of the bond market may be more attractive for investors.
ZANE BROWN, FIXED INCOME STRATEGIST, LORD ABBETT: There are much broader bond markets that are still doing quite well. That would be the corporate bond market, the high yield bond market. They continue to actually improve in price and yields continue to come down ever so slightly. The same thing is happening in the municipal market.
GURVEY: You don't see many interest rate signs in bank windows today. That's because the rate banks are willing to give us on a savings account or a CD doesn't amount to much. Banks make more money when they borrow short at low rates and loan long at higher rates. That means the Fed has to navigate a fine line, keeping the economy growing without upsetting fragile balance sheets at the nation's banks.
KONSTAM: They need to earn an awful lot of capital over the next year or two and they're going to do that with -- against the backdrop of a complicated (ph) monetary policy. So, if you were to worry to kind of too much about inflation right now and put away that -- the gravy train, so to speak, for banks, then you'll be back to where you were, you know, back to where we were in March.
GURVEY: The Fed has signaled it will not step up its buying of mortgages in the near term, allowing the market to determine interest rates. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
DTV-End of An Era or Tech Renaissance?
SUSIE GHARIB: Ready or not, local television stations are finally turning off their analog signals today and going digital. While the switch was delayed from February, an estimated three million Americans still aren't ready. The transition brings with it better pictures. But when the DTV push began 10 years ago, the promises were much greater with visions of multiple channels, interactivity and information on demand. As Stephanie Dhue reports, the digital revolution has become more of an evolution.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Some things happened on the way to the DTV revolution -- the Internet, for one. Technology strategist Larry Irving says the web changed the dynamics for broadcasters.
LARRY IRVING, PRESIDENT, IRVING INFORMATION GROUP: As they're looking to see what they should be doing outside of their core business, they are looking at the online realities that so many -- particularly the young audiences are gravitating toward online presence rather than broadcasting.
DHUE: Broadcasters were hit with a double-whammy. The Internet took advertising dollars, just as ad spending for autos, consumer products and banking began to shrink.
IRVING: You can't move to some of those new multitasking ideas without the revenue stream and the business models just aren't there.
DHUE: While local stations have added some channels -- mostly news, weather and reruns -- pay channels capitalized on the promise of digital technology. HBO for example went from one channel to 13. David Cohen of Comcast says digital technology also opened the door for high speed Internet and movies on demand.
DAVID COHEN, EXECUTIVE VP, COMCAST: Those are all benefits of the digital transition, but they just don't have anything to do with the broadcast digital transition, which is almost the last piece, one of the last pieces that has been occurring over a 10 or 15 year transition to a quote/unquote all digital world.
DHUE: Individual stations collectively spent about $5 billion upgrading equipment to make the switch. With it, they could now have an opportunity to offer hyper-local sports and news programming, filling the void left by closed newspapers. Jonathan Collegio represents broadcasters. He says today's switch is just the beginning.
JONATHAN COLLEGIO, VP, DIGITAL TV TRANSITION, NATIONAL ASSOCIATION OF BROADCASTERS: What we're going to see here in Washington, DC, is free mobile television that you can actually watch on a hand-held device, not unlike this, where you can actually when you're sitting in a park or when you're on the metro or you're on the subway, you can actually watch your local newscast from your palm and that is an incredible new innovation that I don't even know that they appreciate 10 years ago.
DHUE: The digital revolution is creating opportunities elsewhere. Today's shut down of analog TV signals frees up air space for faster wireless connections to your cell phone or laptop. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
Kikkoman is Now a Main Course In the M&A Game
SUSIE GHARIB: The recession is taking a huge toll on mergers and acquisitions around the globe. M&A activity is off by more than 35 percent this year. But it's a much different story for one company. Lucy Craft looks at a Japanese firm that still has a buyer's appetite.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: A salty aroma wafts through medieval archways of Noda City, east of Tokyo. What Hershey is to chocolate, Noda City is to soy sauce. This is home to one of Japan's oldest companies and the leading soy sauce maker on earth, Kikkoman. CEO Yuzaburo Mogi says he's ready for a bigger bite of the global food market.
YUZABURO MOGI, CHAIRMAN & CEO, KIKKOMAN: Because yen is strong and market price is low, so I think it's a good chance for us to buy a non- Japanese company.
CRAFT: Kikkoman is not alone. A swath of Japanese firms in food, pharmaceuticals and other sectors, boasting solid-gold balance sheets, suddenly are among the few players with the motive and the means to make acquisitions nowadays. Attorney Asa Shinkawa.
ASA SHINKAWA, ATTORNEY, NISHIMURA & PARTNERS: There are Japanese companies which have no debt and excess cash piles and for those companies -- especially those who, sooner or later, have to look for overseas market for their future growth. So long as outbound acquisition makes strategic sense for their business, now is a good environment.
CRAFT: Its black condiment, an essential staple of restaurant and home kitchens, Kikkoman has weathered the financial crisis with scarcely a ripple. Instead, for the 400-year-old company, crisis spells opportunity.
MOGI: In America, we acquired two health food companies. I think we might acquire more in the future. At the same time, we have interest in companies which have synergy with soy sauce and distribution.
CRAFT: Attorney Scott Jones of Jones Day says the phenomenon has as much to do with crippled private equity funds as flush Japanese corporations, also known as strategics.
SCOTT JONES, ATTORNEY, JONES DAY: The credit crisis, means that the private equity model means they can't leverage, even if they got cash. They can't leverage the way they used to. Therefore, the returns are lower, so their ability to do deals is impacted. And I think this is giving strategics with money, which means the Japanese strategics, a chance to get back in the ball game. That's what you're seeing.
CRAFT: Unlike the reckless trophy investing of the 1980s, the current wave of buying involves a select number of firms aiming to expand their core businesses.
SHINKAWA: I don't think, for all Japanese corporation, this is a time for engaging overseas transaction. But Japanese companies which have relatively sound financial condition, now is the time for them to use this opportunity for a springboard for their future growth.
CRAFT: Last year, foreign acquisitions by Japanese companies surged to the tune of nearly $80 billion. M&A experts reckon that 2009 will be an even busier year, as cash-rich Japanese corporations scour the globe for deals. Lucy Craft, NIGHTLY BUSINESS REPORT, Noda City, Japan.
"Market Monitor"-Eugene Peroni, Portfolio Manager for Advisors Asset Management
PAUL KANGAS: My guest "Market Monitor" this week is Eugene Peroni, portfolio manager for Advisors Asset Management and Gene, welcome back to NIGHTLY BUSINESS REPORT.
EUGENE PERONI, JR., PORTFOLIO MANAGER, ADVISORS ASSET MGMT.: Pleasure to be back here, Paul, thank you.
KANGAS: I know that you base a large part of your investment strategies on the market's technical behavior. What are your technical tools saying about the current market?
PERONI: I think we're in a confirmed uptrend and I base this on the price architecture that we see and our bigger charts, on the money flow analysis, especially the non-block, the smaller trade money flow, characteristics are very good and the relative strength that we're seeing in a number of different sectors since we began the bottoming process last October. It's also very encouraging because it's the same leadership that we had seen prior to the financial downfall. So many of the sectors that were doing well between 2002 and 2007 are once again the leaders in this market. That I think is very encouraging.
KANGAS: I give you your choice, A, this is a brand new bull market emerging, or B, it's an old bear staging some pretty impressive rallies occasionally. A or B?
PERONI: I have to go with A on that. I think that this is a bull market.
KANGAS: All right. What indicators are most bullish that you're looking at?
PERONI: Well, the money flow indicators are quite good. The volume indicators are not as strong as we'd like to see, but it some ways that's encouraging because it means that many investors are still sidelined and have yet to come into the market to push it higher longer term. So I think we have yet to see that come along.
KANGAS: What are your favorite stock sectors and why?
PERONI: Well, I favor the emerging market growth theme. So we're skewed more toward manufacturing, infrastructure, metals, materials, energy. This is a broad-based market.
KANGAS: What market signs are you watching the most closely?
PERONI: Well, I would say that for now, we're looking at where the leadership has been since the bottom last October. And we see that some of the stocks have been extended near term but we do expect that the temporarily extended conditions to be resolved, just by normal rotational behavior.
KANGAS: OK.
PERONI: So we think we will see some of that and some sectors that were underperforming recently, could get a little bit of a move here. Some of the stronger sectors like the materials and the metals pull back a bit over the next few weeks.
KANGAS: Interesting. Your last visit with us was January 30 of this year and you gave four stock recommendations. Let's have a look and see how they've done. CR Bard (BCR) down 13.5 percent. Still with it? Would you buy it here?
PERONI: We do like it for the long term.
KANGAS: OK. Floserve (FLS) you did really well, up 58.3 percent. Are you taking some money off the table there or staying with it?
PERONI: We're staying with that one. We think it still has very good leadership characteristics for the long haul.
KANGAS: OK, then moving along to your third and fourth choices. Lockheed (LMT) hasn't done much, about the same as it was, but that's not bad in recent market times. Are you still with it?
PERONI: We are. And we do like the defense contractor group.
KANGAS: And SPX Corp (SPX) did well, up nearly 20 percent. Some good calls there, Gene, I congratulate you.
PERONI: Thank you, Paul.
KANGAS: How about some new recommendations for our viewers?
PERONI: Well, again, back on the defense contractor theme, a like Alliant Technologies (ATK), symbol ATK on the New York Stock Exchange.
KANGAS: OK and the $90 issue and it's been a lot higher. And let's hope it returns to that old high. Number two pick.
PERONI: It's Freeport McMoran (FCX), again, we do like the materials, the metals. This is a good play in copper and to some extent the gold play as well, symbol FCX.
KANGAS: Very good, number three.
PERONI: Number three is Noble, symbol NBL on the New York Stock Exchange. We believe that oil is still headed higher here. It could correct a little bit over the short run, but I think that there is the potential for new record highs in oil over the next three to five years. We do like the energy group and Noble is a leader in that category.
KANGAS: And time for one more quickly.
PERONI: Powell, symbol POWL. This is a company involved in distribution of power. They service the energy, transportation and utility sectors.
KANGAS: Do you own any of these stocks personally, Gene?
PERONI: Only through the investment trust that I supervise.
KANGAS: OK, indirectly. Our time has run out, but thanks for being with us again. It's always a pleasure.
PERONI: It's my pleasure, thank you, Paul.
KANGAS: My guest Eugene Peroni of Advisor's Asset Management.
Paul Kangas Stocks in the News
PAUL KANGAS: Wall Street opened with a sell-off as profit takers sent oil, metal and other commodity stocks lower. The Dow fell 51 points at the outset of trading, while the NASDAQ lost 26 points. The tech stocks were undermined by a fourth quarter loss at National Semiconductor. But because the downturn was relatively mild, buyers returned in the belief the path of least resistance was higher. That turned out to be the case for the blue chips. The Dow closed up 28.34 at 8,799.26 and that was enough to turn it into positive ground on the year. For the week, the Dow rose in three of the last five sessions for an overall advance of 36.13 points. The NASDAQ fell 3.57 to 1,858.80 today. On the week, it rose twice and fell three times, had an overall gain of 9.38. The Standard & Poor's 500 was up 1.32 closing at 946.21 today. For the week, it tacked on 6.12 points overall. Over in the bond market, the 10-year note rose 15/32 to 94 14/32, putting the yield at 3.80 percent.
Big board volume leader on 37.6 million shares, Bank of America (BAC) moving up $0.75. The Stiefel Nicholas brokerage boosted its price target from $18 to $22 a share in the belief the company will repay its TARP by early next year.
Citigroup (C) lost a penny.
And so did Marshall & Ilsley (MI). Marshall & Ilsley after the close yesterday priced and sold 87 million of its shares at $5.75 each.
Ameriprise Financial (AMP) down $1.37. Yesterday, the company priced 36 million of its common shares at $25.
Pfizer (PFE) in there with a $0.13 gain.
Sprint Nextel (S) up $0.21.
Vale (VALE) $0.77 loss there.
And Ford Motor Co (F) dropped $0.13.
General Electric (GE) a nickel gainer. Ford Motor was up $0.13 I should say.
And American Intl Group (AIG) no change.
Novartis Ag (NVS), the big drug company, up $1.66. The company said it successfully completed the production of its first batch of H1N1 flu vaccine weeks ahead of expectations, good news there.
And then Baxter International (BAX) up $1.66. That company said full production of its flu vaccine will be ready by early July.
Clorox Co (CLX) up $2.74. Yesterday the company boosted its dividend by 9 percent. Today, Oppenheimer upgraded it from "under perform" to "out perform" on the company's upbeat outlook for 2010.
Hartford Financial (HIG) down $1.13. It began a $750 million offering of common stock today. The company also is participating in TARP.
Alaska Air Group (ALK) up $0.78. The company plans to buy $50 million worth of its own common stock.
Solera Holdings (SLH) up $1.51. The company's in the auto insurance software business and got an upgrade from Needham securities from "hold" to a "buy."
Then Vulcan Materials (VMC) rebounding $4.50 after a loss yesterday when the company cut its quarterly dividend from $0.49 to only $0.25 and priced an 11.5 million share stock offering at $41 a share. Looks like it was well received.
Cabot (CBT) down $2.29. JPMorgan issued an "under perform" rating in the belief the company will have to cut its $0.72 annual dividend due to poor market conditions.
National Semiconductor (NSM) lost $0.88 after reporting a fourth quarter loss of $0.28 a share. Sales plummeted 39 percent. Goldman Sachs repeated a "sell."
Apple (AAPL) topped the NASDAQ actives, down $2.98.
Research in Motion (RIMM) off $2.42.
Google (GOOG) fell $4.16.
Microsoft (MSFT) bucked the trend, up $0.50.
Cisco Systems (CSCO) a $0.19 loss there. Intel (INTC) $0.04 drop.
Baidu (BIDU) down $11.69.
Qualcomm (QCOM) gained $0.07.
And then Amazon.com (AMZN) off $1.61. Amazon said it'll pay $51 million to settle a legal dispute with Toys R Us.
Then Oracle (ORCL), tenth in volume, dropped $0.09.
In other trading, Savient Pharmaceuticals (SVNT) up $3.33, big percentage move. The FDA says the company's gout treatment is effective in two recent studies, but there are still some issues about it.
And those are the stocks in the news tonight.
